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Tribunal says holiday pay should include overtime

Thousands of businesses are facing additional costs after a tribunal ruled that overtime should be included in holiday pay calculations.

The Employment Appeal Tribunal ruled that employers must factor in overtime when calculating holiday pay, instead of only taking basic pay into account.

The tribunal also said that employees could make backdated claims if it has been less than 3 months since their last holiday.

A survey by EEF, the manufacturers' organisation, found that 93% of manufacturers said their payroll costs would increase if they had to include overtime in holiday pay.

Business groups have criticised the decision. John Cridland, director-general of the Confederation of British Industry, warned that it could result in job losses:

"This is a real blow to UK businesses now facing the prospect of punitive costs potentially running into billions of pounds - and not all will survive."

John Allan, national chairman of the Federation of Small Businesses, said it presented "a real risk of small firms being forced to close".

Adam Marshall, executive director of policy and public affairs at the British Chambers of Commerce, described the ruling as "damaging for businesses".

Following the decision, the government announced that it had set up a taskforce to examine the potential impact on businesses.

Business Secretary Vince Cable said:

"Government will review the judgement in detail as a matter of urgency. To properly understand the financial exposure employers face, we have set up a taskforce of representatives from government and business to discuss how we can limit the impact on business."